'Parachuting In' to Lead Firms May Be Next Lateral Trend

A number of firms have named a relatively recent lateral partner as their next chairman or managing partner, Bower noted. And there are a lot of 40- to-50-somethings in leadership roles whose natural tenure as leaders of about five to 10 years will expire, he said.

Succession Planning

When the baby boomer generation of firm leaders begins to leave, the “heir apparent” might not be there or might not be ready to take over, Bower said. Those firms might start to look outside for their next leaders, he said. “I think we will see movement away from the lifer automatically taking that position and it won't just be laterals,” Bower said of the next generation of firm leadership.

While firms should “absolutely” still be focused on succession planning, Bower said, one result of that planning could be looking for leadership from outside the organization. The idea of bringing in an “outsider” to have a leadership role in a law firm is far from unheard-of. In Pennsylvania, Pepper Hamilton hired Scott Green from WilmerHale, Stevens & Lee hired Temple University Health System Chairman Joseph “Chip” Marshall III as its vice chairman, DLA Piper hired former Linklaters leader Tony Angel as global co-chairman after he spent a few years at Standard & Poor's, and Thomas A. “Tad” Decker joined Cozen O'Connor in 2000 as the firm's managing partner after working in-house for several years.

The only one of those examples to move from one law firm to another was Green, who is not a lawyer. A law firm partner who possesses a leadership role rarely makes the move to immediately head up another firm.

That was until Ajay Raju, the former head of Reed Smith's Philadelphia office and former leader of the firm's business department, left the firm to serve as CEO of Dilworth Paxson.

Raju will continue to manage a corporate practice. He is bringing over a 10-person legal team with him. And bankruptcy partner Lawrence McMichael will serve as chairman with partner James Hennessey managing the day-to-day needs of the firm.

Is External Hiring Here to Stay?

Jessa Baker, a senior consultant with LawVision Group in Chicago, said a rise in external hiring for leadership positions makes sense for some roles, and doesn't for others.

Baker classified leadership positions into two different camps: external and internal. The internal-facing role, which she said is usually given the title of managing partner, is not something firms will be looking to fill from outside the firm.

“The most important attribute to be successful [in the managing partner role] is institutional knowledge and social capital,” Baker said.

The managing partner typically oversees issues such as the management of lawyers, supervision of practice group leaders and compensation, she said.

“You can't hire externally for that,” Baker said. “The part that's becoming increasingly valuable for firms to look for external talent are those external-facing roles.”

There are three types of leadership needs that would most typically result in a firm hiring its next leader externally, Baker said.

A firm that is looking to improve profitability may hire away a partner from another firm who has proven successful at alternative fee arrangements or project management. Baker said firms are already starting to hire pricing directors from other firms.

“Firms can only do so much internally until they have to look outside to get creative ideas,” Baker said.

The second reason to hire externally is strategy, Baker said. Just as important as it is for a lateral to bring a book of business, a lateral leader needs to bring relationships and the ability to build relationships, Baker said. Only a small subset of lawyers has the visibility to help proliferate a firm's reputation, she said.

The third prong to hiring leadership externally is talent management, Baker said. A firm could benefit from hiring a leader who is skilled at hiring, retaining and motivating top talent, she said.

Baker said the trend in external hiring at law firms thus far has been on hiring nonlawyer business managers.

“The next extension is perhaps to hire a lawyer,” she said.

The most likely scenario is for smaller firms to hire from larger firms to get that person's experience, Baker said. That person is also going to come with a hefty price tag, however, which might knock the smaller firm out of the running.

Caveats

One caveat to hiring lawyers from other firms is that there is a small pool from which to hire because most firms are only going to want to hire lawyers with proven leadership track records. An attorney with a great book of business may not have had the time or opportunity to prove his or her worth as a leader, she said. The other caveat to firms hiring leadership from outside of their ranks is dealing with any potential internal resentment. Bower said any newcomer would need the imprimatur of other firm leadership and those passing the torch.

“It has to be done with at least the acquiescence of leadership among existing partners to make it successful,” Bower said.

Baker said one obstacle a new leader will always face when coming from another firm is establishing his or her credibility. Some firms have created a new role on top of the existing leadership structure, which can in part defray any potential pushback from existing partners expecting to become the next leader. But Baker said that isn't necessarily the best option.

“One way firms can avoid the perception that someone internally is being bypassed for an external hire is by creating a bifurcated role or a new role,” Baker said. “I don't see that as effective in the long run as communicating to people effectively and making sure people are being put into the best place for the right talent.”

Culture Shock?

For Decker, joining Cozen O'Connor in a leadership role without ever having been at the firm wasn't as much of a culture shock as it might have seemed. While Cozen O'Connor wasn't the firm he used most often when hiring outside counsel, he was familiar with its culture through his close friendship with founders Stephen A. Cozen and Patrick O'Connor. While Decker said he felt he knew the business well, he admits he did have reservations about “parachuting” into the firm.

“There are always some people inside a firm of whatever number that are going to think, 'I could lead it,'” Decker said. “Clearly, Cozen O'Connor had a few people who could have done it, and a lot of younger people in a position that, with some more experience, could do it. … That wasn't my concern when coming in as much as my peers, and they were unbelievably supportive and terrific. It depends a lot on culture and you have to prove yourself, have to prove you are listening and know what you are doing.”

For Decker, it was a new business, though by handling mergers and acquisitions as a general counsel and working with outside counsel, he had a sense of how law firms work. He said people being hired from other law firms or professional services businesses already have that understanding of how a firm operates. The biggest obstacle then becomes the difference in culture between two firms, Decker said.

“But at the end of the day, if someone is really good at managing business and people, that's the key,” Decker said.

For Raju, taking time to meet with as many of Dilworth Paxson's partners as possible was an important part of his integrating into the firm. He said every partner had the chance to vote on his joining as CEO and all but one voted yes. “I think as law firms become more and more in tune with the changing climate where they have to operate more as businesses, you will see a trend where firms will attract folks with business acumen to run things,” Raju said.

He predicted lateral moves between leadership positions will be on the rise. For a firm that has global ambitions, for example, it could be easier to hire a lawyer who has already led global initiatives for another firm, Raju said. “It's becoming a business,” Raju said. “You will start seeing a hunt for business acumen.”

Gina Passarella is a reporter for The Legal Intelligencer, an ALM sister publication of this newsletter. She can be contacted at [email protected] or 215-557-2494.

One of the last bastions of law firms operating as a profession ' the near certainty that a lifelong partner of the firm would be the one at its helm ' appears to be changing as a number of Pennsylvania firms in recent years have looked to outsiders to fill leadership voids. Will this be the trend in other states as well?

“I think managing law firms is going to become a legitimate career path and, as that happens, just like you see CEOs move between companies, I think you'll see people move between law firms,” Altman Weil principal Ward Bower said.

Bower admits he has been making this prediction ' and arguing its benefits ' for years without the trend ever really taking off. But the time may now be right, he said.

A number of firms have named a relatively recent lateral partner as their next chairman or managing partner, Bower noted. And there are a lot of 40- to-50-somethings in leadership roles whose natural tenure as leaders of about five to 10 years will expire, he said.

Succession Planning

When the baby boomer generation of firm leaders begins to leave, the “heir apparent” might not be there or might not be ready to take over, Bower said. Those firms might start to look outside for their next leaders, he said. “I think we will see movement away from the lifer automatically taking that position and it won't just be laterals,” Bower said of the next generation of firm leadership.

While firms should “absolutely” still be focused on succession planning, Bower said, one result of that planning could be looking for leadership from outside the organization. The idea of bringing in an “outsider” to have a leadership role in a law firm is far from unheard-of. In Pennsylvania, Pepper Hamilton hired Scott Green from WilmerHale, Stevens & Lee hired Temple University Health System Chairman Joseph “Chip” Marshall III as its vice chairman, DLA Piper hired former Linklaters leader Tony Angel as global co-chairman after he spent a few years at Standard & Poor's, and Thomas A. “Tad” Decker joined Cozen O'Connor in 2000 as the firm's managing partner after working in-house for several years.

The only one of those examples to move from one law firm to another was Green, who is not a lawyer. A law firm partner who possesses a leadership role rarely makes the move to immediately head up another firm.

That was until Ajay Raju, the former head of Reed Smith's Philadelphia office and former leader of the firm's business department, left the firm to serve as CEO of Dilworth Paxson.

Raju will continue to manage a corporate practice. He is bringing over a 10-person legal team with him. And bankruptcy partner Lawrence McMichael will serve as chairman with partner James Hennessey managing the day-to-day needs of the firm.

Is External Hiring Here to Stay?

Jessa Baker, a senior consultant with LawVision Group in Chicago, said a rise in external hiring for leadership positions makes sense for some roles, and doesn't for others.

Baker classified leadership positions into two different camps: external and internal. The internal-facing role, which she said is usually given the title of managing partner, is not something firms will be looking to fill from outside the firm.

“The most important attribute to be successful [in the managing partner role] is institutional knowledge and social capital,” Baker said.

The managing partner typically oversees issues such as the management of lawyers, supervision of practice group leaders and compensation, she said.

“You can't hire externally for that,” Baker said. “The part that's becoming increasingly valuable for firms to look for external talent are those external-facing roles.”

There are three types of leadership needs that would most typically result in a firm hiring its next leader externally, Baker said.

A firm that is looking to improve profitability may hire away a partner from another firm who has proven successful at alternative fee arrangements or project management. Baker said firms are already starting to hire pricing directors from other firms.

“Firms can only do so much internally until they have to look outside to get creative ideas,” Baker said.

The second reason to hire externally is strategy, Baker said. Just as important as it is for a lateral to bring a book of business, a lateral leader needs to bring relationships and the ability to build relationships, Baker said. Only a small subset of lawyers has the visibility to help proliferate a firm's reputation, she said.

The third prong to hiring leadership externally is talent management, Baker said. A firm could benefit from hiring a leader who is skilled at hiring, retaining and motivating top talent, she said.

Baker said the trend in external hiring at law firms thus far has been on hiring nonlawyer business managers.

“The next extension is perhaps to hire a lawyer,” she said.

The most likely scenario is for smaller firms to hire from larger firms to get that person's experience, Baker said. That person is also going to come with a hefty price tag, however, which might knock the smaller firm out of the running.

Caveats

One caveat to hiring lawyers from other firms is that there is a small pool from which to hire because most firms are only going to want to hire lawyers with proven leadership track records. An attorney with a great book of business may not have had the time or opportunity to prove his or her worth as a leader, she said. The other caveat to firms hiring leadership from outside of their ranks is dealing with any potential internal resentment. Bower said any newcomer would need the imprimatur of other firm leadership and those passing the torch.

“It has to be done with at least the acquiescence of leadership among existing partners to make it successful,” Bower said.

Baker said one obstacle a new leader will always face when coming from another firm is establishing his or her credibility. Some firms have created a new role on top of the existing leadership structure, which can in part defray any potential pushback from existing partners expecting to become the next leader. But Baker said that isn't necessarily the best option.

“One way firms can avoid the perception that someone internally is being bypassed for an external hire is by creating a bifurcated role or a new role,” Baker said. “I don't see that as effective in the long run as communicating to people effectively and making sure people are being put into the best place for the right talent.”

Culture Shock?

For Decker, joining Cozen O'Connor in a leadership role without ever having been at the firm wasn't as much of a culture shock as it might have seemed. While Cozen O'Connor wasn't the firm he used most often when hiring outside counsel, he was familiar with its culture through his close friendship with founders Stephen A. Cozen and Patrick O'Connor. While Decker said he felt he knew the business well, he admits he did have reservations about “parachuting” into the firm.

“There are always some people inside a firm of whatever number that are going to think, 'I could lead it,'” Decker said. “Clearly, Cozen O'Connor had a few people who could have done it, and a lot of younger people in a position that, with some more experience, could do it. … That wasn't my concern when coming in as much as my peers, and they were unbelievably supportive and terrific. It depends a lot on culture and you have to prove yourself, have to prove you are listening and know what you are doing.”

For Decker, it was a new business, though by handling mergers and acquisitions as a general counsel and working with outside counsel, he had a sense of how law firms work. He said people being hired from other law firms or professional services businesses already have that understanding of how a firm operates. The biggest obstacle then becomes the difference in culture between two firms, Decker said.

“But at the end of the day, if someone is really good at managing business and people, that's the key,” Decker said.

For Raju, taking time to meet with as many of Dilworth Paxson's partners as possible was an important part of his integrating into the firm. He said every partner had the chance to vote on his joining as CEO and all but one voted yes. “I think as law firms become more and more in tune with the changing climate where they have to operate more as businesses, you will see a trend where firms will attract folks with business acumen to run things,” Raju said.

He predicted lateral moves between leadership positions will be on the rise. For a firm that has global ambitions, for example, it could be easier to hire a lawyer who has already led global initiatives for another firm, Raju said. “It's becoming a business,” Raju said. “You will start seeing a hunt for business acumen.”

Gina Passarella is a reporter for The Legal Intelligencer, an ALM sister publication of this newsletter. She can be contacted at [email protected] or 215-557-2494.